Instant Merchant Payments in India – What can other emerging countries learn from it?

UPI: Solution to Instant Merchant Payment and lot more!

Borrowing, lending, credit periods, debts are usual terms in any business environment. One factor remains constant here is ‘delay’ in payments. These flexibilities make merchants happy only when there is a prospect for making or increasing business profits. Otherwise, any delay in payment may lead to direct or indirect losses.
In fintech, one noticeable example of such indirect losses to merchants is POS transactions. Where the majority of the merchants are neither receiving payments on a real-time basis nor on the same business day. This is due to dependencies at the host like merchant settlement processes.

Due to which merchants have to wait for their hard-earned money. This commercial gap becomes substantial when transaction volume and amounts are high. And can lead to difficulties in reckoning daily transactions, gaining bank interest or instant utilization of earnings, etc. Naturally, the happiest merchant’s the one who gets paid immediately, just like cash transactions.
But being in the era when the payment industry was focusing on innovations and upgradations, digitization and cash transactions became inverse-in-proportion.
Considering this fact, National Payment Corporation of India introduced an innovation called Unified Payment Interface (UPI).
UPI brought revolutionary transformation to the electronic payments industry by not only bridging the above-mentioned gaps but also providing a lot of other benefits to each participant of the ecosystem like an end-user customer, merchants, and banks.

What is UPI?
Unified Payments Interface (UPI) is a system that powers multiple bank accounts into a single mobile application (of any participating bank), merging several banking features, seamless fund routing & merchant payments into one hood. It also caters to the “Peer to Peer” collect request which can be scheduled and paid as per requirement and convenience.

Objectives

Characteristics

Exclusives
Supports both transactions Purchase and Fund Transfer.
• Immediate money transfer through mobile device round the clock 24*7 and 365 days.
• The best alternative for POS transactions.
• Single mobile application for accessing different bank accounts.
• Single Click 2 Factor Authentication – Aligned with the Regulatory guidelines, yet provides for a very strong feature of seamless single click payment.
• The virtual address of the customer for Pull & Push provides for incremental security with the customer not required to enter the details such as Card no, Account number; IFSC, etc.
• Bill Sharing with friends.
• The best answer to Cash on Delivery hassle, running to an ATM or rendering the exact amount.
• Merchant Payment with Single Application or In-App Payments.
• Utility Bill Payments, Over the Counter Payments, Barcode (Scan and Pay) based payments.
• Donations, Collections, Disbursements Scalable.
• Raising a complaint from Mobile App directly.

Who are the participants?
• Payer PSP
• Payee PSP
• Remitter Bank
• Beneficiary Bank
• NPCI
• Bank Account holders
• Merchants

Advantages
The registration process at the end-user as well as a merchant is quick and simple. It gives the experience of PIN-based smooth and secure transactions.
Below are the benefits to the ecosystem participants.

• Benefits for banks:
1) Single click Two Factor authentication
2) Universal Application for transaction
3) Leveraging existing infrastructure
4) Safer, Secured and Innovative
5) Payment basis Single/ Unique Identifier
6) Enable seamless merchant transactions

• Benefits for end Customers:
1) Round the clock availability
2) Card-less transactions hence no need to carry debit cards
3) No Payee registration
4) Instant fund transfer with no or minimal transaction fee
5) Single Application for accessing different bank accounts
6) Use of Virtual ID is more secure, no credential sharing
7) Single click authentication
8) Raise Complaint from Mobile App directly
9) Directly linked with bank accounts and supports real-time debit entries. Unlike e-Wallets in which user has to maintain sufficient balance.

• Benefits for Merchants:
1) Instant credit of customer payments to the merchant account.
2) Seamless fund collection from customers – single identifiers
3) No risk of storing customer’s virtual address like in Cards
4) Tap customers not having credit/debit cards
5) Suitable for e-Com & m-Com transaction
6) Resolves the COD collection problem
7) Single click 2FA facility to the customer – seamless Pull
8) In-App Payments (IAP)
9) Low or no investment cost unlike POS, as personal smart Phone can be used to install UPI app.
10) Unlike POS it has no maintenance cost.

Disadvantages:
• Transaction Limit:
It varies from bank to bank but, the majority of the banks are having a maximum per day transaction limit of Rs. 1 lakh. However, one can perform a transaction of more than Rs. 1 lakh using internet/ mobile banking for fund transfer or POS for merchant payment. In simple words, it is ideal for transferring or paying smaller amounts.

• The Requirement of Internet and Smartphone
This payment method is totally internet and smartphone-dependent. People who are not using smartphones and the internet cannot use UPI.

Evolution:
Customers started using UPI applications actively to make payments. They are happy that now they don’t have to bother about carrying cash or cards while shopping. Also, they don’t have to maintain sufficient balances on their e-Wallets. Customers started giving priority to those merchants who support UPI.
Looking at this kind of customer behavior, more and more merchants started supporting UPI payments and for the same, they got enrolled with the respective banks.
Eventually, the majority of the banks started supporting UPI transactions.

Conclusion:
Looking at all the characteristics of UPI we can say that, Disadvantages are easily overruled by its advantages.
UPI module got developed with a specific motive and now that motive is working as expected, that too with huge success.
I would like to conclude this topic by saying, a few years ago NPCI planted a seed of correct fruit on a perfect time which is become a big tree and everyone is enjoying its fruits.
Observe this tree, it is still growing!

Source: www.npci.org.in

Abhishek Mhaske

Abhishek is working as Sr. Consultant in Verinite. He is a Techno-functional expert in Cards & Payments domain having experience in Switch Implementation and Business Analysis. His passion is to explore new things, likes to read and travel. He believes in the saying "A Change of Work is the Best Rest".